Customers get the worse deal as stakeholders

Misleading customers can be an expensive luxury. In 2013 for example, fines for swindling their customers cost Npower nearly £4 million in 2013, Scottish Power £8.5m, Tesco £300,000, AXA £1.8million. This month, March 2014, Toyota admitted misleading customers and agreed a huge $1.2 Billion criminal fine.

Also this month in the UK HomeServe scored a record fine for swindling nearly 70,000 its customers over its policies. The City watchdog described a corporate a culture of “putting profits before treating customers fairly”.

The Financial Conduct Authority (FCA) fined the insurance and repair company £30.6m, the regulator’s largest ever for customer mal-treatment. It found that telephone sales staff were rewarded for focusing on “quantity not quality” over a six-year period.

Now some timely analysis from the Institute of Business Ethics shows treatment of stakeholders to be the second most commonly reported business ethics issue in the British media. Of these, customers are the most mistreated.[1]

“Swindling” sounds a harsh comment on those who lead badly behaved organisations. It’s the equivalent of using that absurd substitute “mis-spoken” instead of plain “lying.” Their bosses would probably look pained at the accusation put in such stark terms.

Yet they have indeed been swindling people. Doubtless they would prefer less emotive interpretations, such as “misjudgements in marketing,” “gross exaggerations of the truth”, or the most popular version, the more anodyne “mis-selling.” The result though is the same–customers lose, companies win.

“Customers” queue outside the Midosuji-Suomachi branch of McDonald’s in Osaka, December 2008

L’Oreal for example was heavily criticised by the Advertising Standards Authority a few years back for its highly “misleading make-up adverts.” About the same time McDonalds was shamed by revelations of an Osaka branch hiring 1000 people to stand in a queue to make it look like there was a “huge demand for its quarter pounder burgers.”

Leaders were also asleep at the wheel over Payment Protection Insurance, probably one the largest UK swindles of recent years. Collectively, British banks have been forced to set aside over £22 billion to compensate for PPI mis-selling. Fines have landed on a number of individual companies–swindling ends up being expensive.

IBE research this year shows most 50 FTSE100 company (76%) have sections in their codes on how employees should engage with customers. None has room for swindling, yet there’s a long way to go to bring the aspirations to life.

Confirming that is the evidence consumers don’t trust business to behave ethically. The widely used Edelman Trust Barometer this year for example, reports only 58% of respondents think business will do what’s right. That is, around four out of ten consumers feel business will do the wrong thing.

Tackling the swindles

These results are an indictment of ethical leadership in business. They show clearly how far there is to go in establishing responsible business cultures.

What can be done beyond more fines, adverse publicity and shamefaced leaders offering apologies?

Options include tighter regulations, different and more damaging kinds of penalties, and in the case of government contracts being frozen out of any further business. Both GS4 and Serco for example are both struggling to recoup trust after their recent abysmal performances.

The main option though is putting culture at the heart of business operations. Only when values drive activity will swindles start of diminish.

Meanwhile CEOs are good at producing the sound bites to share their distress at their company having swindled, misled or generally screwed up:

We are putting the customer first, and that is guiding every decision we make. That is how we want today’s GM to be judged. How we handle the recall will be an important test of that commitment.

Mary Barra, GM’s first female CEO, March 2014We’ve always been focused on customers and gaining their loyalty…and this is going to be even more important in the new era of retailing. Businesses that don’t change with the times don’t succeed and we didn’t change enough.”

Philip Clarke Tesco CEO, March 2014Now we must go back to basics. … We need to remember – and then never forget – that the customer is why we are in
business. … To move from stability to renewal, we need to first address and then clean up every aspect of how we treat customers.”Ross McEwan, CEO of RBS, Feb 2014

In truth we badly need business leaders who take ethics seriously, that is ones who understand about values, not just talk about them. Where are the business leaders with a hunger to turn company cultures from short-termism into ones where how you win, matters as much as winning?

They do exist, but like rare orchids, you have to hunt hard to find them.

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